Cape  Fear  and  Yadkin  valley  railway 
Report 


The 


Howell  Collection 

OF   HISTORICAL 
MATERIALS 


Presented  by  Kay  Kyser 

And  his  Mother 

Emily  Royster  Howell  Kyser 

As  a  Memorial 

To  her  Brother 

Edward  Vernon  Howell 

Dean  School  of  Pharmacy 

i 897-1 93 i 


THE   UNIVERSITY 

OF 

NORTH   CAROLINA 

LIBRARY 

C23t 


REPORT 


-OF— 


COL  T.   M.   R.  TALCOTT, 

Railroad  Expert, 

— TO— 

JOHN  GILL,  Esq.,  Receiver 

CAPE  FEAR   AND  YADKIN 
VALLEY  RAILWAY. 


August  27th,  1896. 
Genl.  John  Gill,  Receiver, 

Cape  Fear  &  Yadkin   \7alley  Railway, 
Baltimore,  Jlfd. 

Dear  Sir: — I  beg  leave  to  submit  the  following  Report  and 
Comparative  Estimates  of  the  value  of  the  respective  Divisions, 
Leased  Line  and  Branches  of  the  CAPE  FEAR  AND  YADKIN 
VALLEY  RAILWAY. 

The  order  of  the  Court  requiring  this  estimate  also  requires 
that  the  ground  for  such  estimate  shall  be  given,  and  in  accord- 
ance with  this  requirement,  the  method  of  arriving  at  values  here- 
inafter given  is  stated  as  follows  : 

The  value  of  a  railway  depends  upon  what  I  would  call  its 
physical  value,  and  its  availability  as  a  means  of  transportation  in 
the  service  of  the  public,  which  I  would  call  its  franchise  value. 

The  physical  value  of  a  railway  is  what  it  would  cost  to  con- 
struct it  anew,  less  the  depreciation  it  has  suffered  from  use  or 
decay. 

The  franchise  value  is  measured  by  its  net  earnings,  which 
depend  upon  the  demand  for  transportation,  and  the  cost  at  which 
it  can  be  done. 

Railways  are  esteemed  for  their  net  earnings,  and  unless  they 
can  earn  enough  to  pay  the  interest  on  the  cost  of  construction, 
the  investment  is  an  unprofitable  one.  The  road  is  not  consid- 
ered worth  its  actual  cost,  or  even  what  I  call  its  physical 
value,  which  may  be  less  than  cost.  On  the  other  hand,  the 
physical  value  cannot  be  ignored,  for  it  is  capital  invested  in  the 
business,  and  if  no  more  than  the  cost  of  what  is  essential  to  the 
business,  it  represents  the  capital  necessary  to  be  employed  in  it, 
and  without  which  there  would  be  no  net  earnings.  The  franchise 
may  be  worthless,  and  yet  some  value  would  attach  to  the  prop- 
erty itself. 

Should  there  be  no  demand  for  such  service  as  the  railway 
can  perform,  its  value  as  a  railway  can  no  longer  be  considered, 
but  value  will  attach  to  the  material  of  which  it  is  composed,  and 

<r 
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such  buildings,  appliances  and  other  parts  of  it  as  may  be  avail- 
able for  use  elsewhere  or  for  other  purposes. 

If  by  reason  of  defective  construction,  decay  or  other  causes, 
a  railway  is  not  equal  to  the  demands  upon  it,  its  franchise  value 
may  be  thereby  greatly  impaired. 

The  ascertainment  of  the  physical  value  of  a  railway  or  of  any 
of  its  parts  is  a  mere  matter  of  appraisement,  but  to  determine  its 
franchise  value  is  a  more  intricate  matter  ;  for  investments  are 
made  with  reference  to  future  as  well  as  immediate  returns,  and 
the  value  of  a  franchise  depends  on  the  average  net  earnings  for  a 
period  of  years  in  which  they  may,  and  generally  do,  increase 
year  after  year  as  the  business  develops  by  reason  of  the  facilities 
afforded. 

In  the  case  of  the  Cape  Fear  and  Yadkin  Valley  Railway,  we 
have  to  deal  with  the  several  paits  of  the  same  road  built  at  differ- 
ent times,  and  some  parts  operated  for  much  longer  periods  than 
others  :  for  we  have  three  divisions  built  at  intervals,  not  all  in  a 
continuous  line,  and  a  leased  line  which  is  an  extension  of  one  di- 
vision and  does  not  connect  with  the  others,  and  sundry  branch 
lines  from  two  of  the  divisions. 

Traffic  from  which  the  earnings  are  derived  originates  in 
different  proportions  along  the  various  parts  of  the  system,  and 
some  sections  of  the  road  are  benefited  by  joint  traffic  more  than 
others,  even  more  than  the  section  which  contributes  the  business. 

The  train  service  has  been  arranged  for  continuous  transpor- 
tation, and  consequently  is  greater  than  the  business  would  seem 
to  require  on  some  parts  of  the  road.  Rails  heavier  than  those 
used  in  construction  have  been  laid  exclusively  on  one  division  to 
enable  it  to  better  accommodate  the  coal  traffic,  although  its  in- 
terest in  that  traffic  is  less  than  one-half  that  of  the  system. 

The  road  has  been  operated  generally  as  was  deemed  best  for 
the  interest  of  the  whole  system,  and  not  especially  in  the  interest 
of  any  part  of  it. 

ESTIMATE  OF  PHYSICAL  VALUES. 

In  considering  the  depreciation  of  the  perishable  parts  of  a 
railway,  it  should  be  remembered  that  the  progress  of  decay  and 
wear  and  tear  does  not  necessarily  impair  its  efficiency,  but  it  does 
depreciate  its  physical  value  as  compared  with  the  cost  when  new. 

2 


No  railway  which  has  been  in  operation  several  years  can  be 
said  to  be  worth  its  cost,  for  parts  of  it  have  suffered  from  wear  or 
decay,  although  not  necessarily  requiring  renewal. 

In  the  first  years  of  a  railway's  life,  these  renewals  are  few 
and  inexpensive  ;  later  on  they  become  exceptionally  heavy,  and 
finally  they  become  a  regular  annual  expense  proportionate  to  the 
number  of  years  such  perishable  parts  will  last,  and  the  cost  of  re- 
newing them.  Especially  is  this  the  case  with  the  cross-ties,  tres- 
tle-work and  wooden  bridges,  which  are  exposed  to  the  action  of 
the  elements,  and  must  be  renewed  in  part  year  after  year. 

If  we  take  cross-ties  as  an  illustration,  it  will  be  found  that 
when  a  railway  has  been  in  use  for  a  number  of  years,  the  renew- 
als become  very  regular,  and  the  number  of  new  cross-ties  re- 
quired each  year  is  proportionate  to  the  average  life  of  the  timber 
used.  In  allowing  for  the  depreciation  they  have  suffered,  it  will 
be  found  that  their  value  is  but  little  more  than  half  what  it  was 
originally,  or  what  they  cost  when  new  ;  notwithstanding  the  fact 
that  none  but  sound  and  serviceable  cross-ties  are  allowed  to  re- 
main in  the  track. 

If,  on  the  other  hand,  a  railway  has  been  in  operation  too 
short  a  time  to  require  the  renewal  of  an  appreciable  number  of  its 
cross-ties,  a  very  large  proportion  of  them  may  be  so  near  the  end 
of  their  life  as  to  have  but  little  value,  though  they  are  still  service- 
able. 

In  making  the  following  estimates  of  the  physical  values,  the 
quantities  of  excavation  and  embankment,  bridge  and  culvert  ma- 
sonry, etc.,  were,  in  a  large  part,  obtained  from  the  records  of 
construction,  and  are  accurate  ;  but  where  no  records  could  be 
found,  they  were  estimated  from  the  profiles,  and  the  classification 
of  the  material  approximated,  it  being  impracticable  to  determine 
the  classification  accurately  after  the  graduation  is  completed. 

The  records  of  the  Chief  Engineer  of  the  Company  of  the 
bridges,  trestle-work,  cross-ties,  rails,  switches,  frogs,  station 
buildings,  water  tanks,  turn-tables,  etc.,  and  of  the  annual  repairs 
and  renewals  of  them,  furnish  ample  data  for  determination,  with 
considerable  accuracy,  of  the  cost  of  each,  and  the  deterioration 
of  the  perishable  parts  of  the  road.  The  deterioration  of  rails, 
frogs,  switches  and  fastenings  was  estimated  by  the  time  they  had 
been  in  use  and  the  traffic  over  them  as  indicated  by  the  train 
mileage  and  car  mileage. 

3 


The  following  Exhibit  (A)  of  the  estimated  physical  values  of 
roadway  and  structures  of  the  Cape  Fear  and  Yadkin  Valley  Rail- 
way is  submitted  with  the  above  explanation,  and  the  further 
statement  that  the  prices  at  which  the  work  is  estimated  are  the 
current  prices  for  such  work  in  that  part  of  the  country  through 
which  the  road  runs.  The  principal  items  of  cost  are  given  sepa- 
rately to  facilitate  comparison  with  other  similar  estimates. 


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ROLLING  STOCK. 

Certain  Rolling  Stock  was  acquired  with  "A,"  "B"  and  "C" 
Divisions,  and  is  estimated  as  belonging  to  them,  but  such  as  has 
since  been  acquired  is  estimated  as  belonging  to  the  system  and 
distributed  to  the  several  divisions  in  proportion  to  the  issues  of 
"A,"  "B"  and  "C"  bonds. 

The  following  Exhibit  (B)  shows  the  estimated  value  of  Roll- 
ing- Stock  and  how  it  is  distributed: 


EXHIBIT  "B." 


Description. 

A  Drv. 

B  Div. 

C  Div. 

System. 

Total. 

Locomotives  .    . 

First-Class   Pass. 

Coaches.  .    .    . 

$14,200.00 

$14,000.00 
5,700.00 

2,900.00 

$22,500.00 

9,400.00 

11,750.00 

4,200.00 

$34,500.00 

$85,200.00 

15,100.00 

19,750.00 

8,350.00 

500  00 

400.00 

64,350.09 

3,473.22 

Second  Class 
Pass.  Coaches. 

Mail,  Bag'ge  and 
Express  Cars  . 

Work-Train 
Shanties  .    . 

8, coo. 00 

1,250x0 

500.00 
400.00 

4,248.97 
894.72 

4.412.00 

Caboose  Cars .  . 

Box  Cars .... 
Stock  Cars  .    .    . 

10,233.78 

15,889.13 

33,978.2i 

Flat  Cars .... 

6.282.60 

10,057.56 

10,116.48 

30,868.64 

Distributed   in 
proportion    t  o 
bonds  issued  . 

$33,905-69 

$72,511.40 

$41,694.88 
$60,581.18 

$73>796-69 
194,899-37 

78,594.69 

$227,991.95 
$227,991.95 

TOOLS,  MATERIAL  AND  SUPPLIES. 

The  Tools,  Material  and  Supplies  on  hand  and  not  in  use  are 
estimated  as  belonging  to  the  system,  as  are  also  the  tools  and 
appliances  in  use  by  the  Bridge  Repair  Force  and  Work  Trains, 
for  the  reason  that  they  are  used  indiscriminately  on  any  and  all 
parts  of  the  road  ;  but  the  tools  in  the  hands  of  trackmen  and  the 
station  equipment  and  supplies  are  credited  to  the  several  divis- 
ions and  to  the  South  Carolina  Pacific  Railway  and  the  Branch 
Roads  according  to  the  actual  distribution  of  them.  The  tools  in  the 
shops  at  Fayetteville  are  considered  as  part  of  the  equipment  of 
"A"  Division,  as  belonging  formerly  to  the  Western  Railroad, 
now  a  part  of  that  Division. 

6 


The    following-  Exhibit  C   shows  th  ;  estimated  value  of  the 
Tools,  Material  and  Supplies  and  Station  Equipment  : 


U 


S 

X 

w 


Total 


-1-  —  ^D    M    "5  <-    C 

l^X  CO  ~  -  -   o 


Rails. 


Coal 


Wood 


Bridge     and    Trestle 
Timber  ........ 


Cross-Ties. 


Tools,  Etc. 


Station  Equipment 


0\  rT  iO      mX 


O  O  O  10  O  On 
r^  ■*  -3"  00  CO  30 

<tH   M  ((   l<)H 

O  N  N  ON  M  VO 


IS" 


How  Credited. 


'    "    '  cl  _»  09  ■-" 

>   >   >  "*  CC         E 

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. .  rt  ,2  P^ 

<  an  U  i/)  tt,  S  c/j 


The  foregoing  statements  give  estimated  values  of  the  prop- 
erty of  the  Cape  Fear  and  Yadkin  Valley  Railway  Company,  (so 
far  as  ascertained  by  careful  examination,  and  with  the  active  and 
intelligent  assistance  of  its  officers, )  except  the  General  Offices  at 
Greensboro  and  Fayetteville,  and  the  material  and  supplies  in 
store-house,  which  are  estimated  as  follows  : 


General  Offices  and  Furniture  .    .    .     . 
Material  and  Supplies  in  Store-House 


$10,500.00 
•  11,371-27 


SUMMARY. 

The  following  Summary,  Exhibit  ''D",  shows  the  estimated 
physical  values  of  the  several  parts  of  the  system,  of  property  be- 
longing to  the  system  generally,  after  distributing  the  Rolling 
Stock  in  proportion  to  "A,"  "B"  and  "C"  bonds,  and  the  values- 
per  mile  of  each  Division,  the  Leased  Line  and  Branches  : 


X 
X 
w 


W 
D 

< 
> 

< 
u 

>• 

X 

Ph 

fa 

O 

>- 
Pi 
< 


u 

w 


Percentage 


Physical    Value    Per 
Mile 


Total 


O  CO  O  ^O  mvO  i-i  COCO  <~0 
OVO  roONiO^J-t^r^ONrO 
N  CO  *■£>   OsCO  r-~  10^0   O   CN 


CO    M    On  ro  lOCO    -*  rt  lO  >«J- 

rO  -*  t^  O  CO    ON  ro  -■    W    ON 
\D    to  ON  0*    O    lONH   ^  t>. 


M    OMn  roCO    ION    h^O 


O    rOVO   «sf  <n   *n  lOCO    cs 


Tools,  Material    and 
Supplies 


<*o  <n  on  uo  r^^o 

t^CO   00     M     M     M 


Rolling  Stock  . 


Roadway    and   Struc- 
tures   


H  H  Ol 
H  CO  ON 
lO  VOCO 

<N~  O"  ** 
t^^O    On 


ON  t^vo  00    On  t^vo  VO«   m 

0\t^4tOt^rOroo'c6   r^. 
t^CO   t^CO    i-i    On  N    m  v£)  CO 

0  CO    On  TfVO    ON^O   -st-VO    ro 

mo"  i-T  cf  "*  cTrf  i^co"  oT\o' 

01  CMOiOfON-    i-i 
O    ICIO         i-i 


Divisions,  Leased  Line 
and  Branches . .   .    . 


.2;  :  o,cq 


Q 


3- 
tt,OCQ< 


FRANCHISE  VALUES. 

The  relative  positions  of  the  several  Divisions  with  reference 
to  existing  traffic  may  be  stated  briefly  as  follows  : 

"A"  Division  is  conveniently  located  for  interchange  of  busi- 
ness with  three  large  systems  of  railway,  viz  :  the  Atlantic  Coast 
Line,  with  which  it  connects  at  Fayetteville  ;  the  Seaboard  Air 
Line,  which  crosses  it  at  Sanford  and  again  at  Maxton  ;  and  the 
Southern  Railway,  with  which  it  connects  at  Greensboro.  This 
Division  traverses  the  lumber  and  naval  store  region  for  the 
greater  part  of  its  length,  and  while  these  products  are  being  ex- 
hausted, the  land  is  adapted  to  other  uses.  It  passes  through  the 
Deep  River  coal  fields,  where  mining  operations  have  been  re- 
cently conducted,  but  are  now  suspended.  At  its  southern  end, 
it  penetrates  the  cotton  region,  and  affords  communication  be- 
tween the  South  Carolina  Pacific  Railway  (which  is  leased  by  the 
Cape  Fear  &  Yadkin  Valley  Railway  Company,)  and  other  parts 
of  the  system.  It  is  the  only  direct  route  between  the  cities 
of  Greensboro  and  Fayetteville,  and  the  oldest  part  of  the  system; 
43  miles  of  it,  from  Fayetteville  to  the  coal  regions,  having  been 
built  more  than  40  years  ago  as  the  Western  Railroad  of  North- 
Carolina,  and  this  part  of  "A"  Division  has  therefore  an  estab- 
lished local  business,  the  result  of  many  years  of  operation. 

"B"  Division  has  access  to  Greensboro  over  the  track  of 
"A"  Division  for  a  distance  of  2,034  ^eet>  while  "A"  Division  can 
reach  the  private  sidings  of  the  Guilford  Lumber  Company,  the 
Greensboro  Furniture  Company,  North  &  Watson's  Roller  Mill, 
the  Female  College  Siding,  Merrimon's  Handle  Works,  the 
Greensboro  Water  Works,  the  Furnace  Branch  and  the  important 
establishment  on  it,  only  over  the  track  of  "B"  Division  for  a 
distance,  in  the  latter  case,  of  6,655  ^eet- 

The  railway  connections  of  "  B  "  Division  are  the  Southern 
at  Greensboro,  the  Norfolk  &  Western  at  Walnut  Cove,  where 
it  crosses  the  newly  constructed  line  from  Roanoke,  Va.,  to  Sa- 
lem, N.  C.  This  connection  with  the  Norfolk  &  Western  makes 
a  comparatively  direct  route  to  the  coal  fields  of  Virginia  and 
West  Virginia.  The  local  territory  of  this  Division  is  as  yet  com- 
paratively undeveloped,  but  its  resources  are  varied,  and  capable 
of  development  in  time. 

"  C  "  Division  affords  the  only  direct  rail  route  between  Fay- 
etteville and  Wilmington,   and  is  the  outlet  to  the   sea   for  the 


-whole  system.  It  enters  Fayetteville  over  the  track  of  "A"  Di- 
vision for  a  distance  of  5,598  feet.  This  part  of  "A"  Division 
was  formerly  used  as  a  means  of  access  to  its  landing  on  the  Cape 
Fear  River,  but  the  river  landing  having  been  abandoned  after  the 
completion  of  "  C  '"  Division  only  such  part  of  the  track  to  it  as 
could  be  used  by  "  C  ' '  Division  was  of  any  special  value  and  has 
been  maintained  in  condition  for  regular  service.  "  C  "  Division 
connects  with  the  Atlantic  Coast  Line  over  the  tracks  of  "A"  Di- 
vision at  Fayetteville,  and  with  the  Seaboard  Air  Line  and  the 
Atlantic  Coast  Line  and  the  Wilmington,  Newbern  &  Norfolk 
Railway  at  Wilmington,  the  first  two  by  means  of  the  Wilmington 
Railway  Bridge  Company's  tracks. 

It  runs  through  an  undeveloped  region  of  country,  the  adapta- 
bility of  which  for  truck  farming  is  attracting  attention.  Since  its 
completion  to  Wilmington,  the  cotton  from  the  Bennettsville  dis- 
trict of  South  Carolina  has  been  largely  shipped  to  that  port  over 
the  South  Carolina  Pacific  Railway  and  the  "A"  and  "C"  Di- 
visions of  the  Cape  Fear  &  Yadkin  Valley  Railway. 

The  South  Carolina  Pacific  Railway  is  practically  an  exten- 
sion of  "A"  Division  from  the  State  line  to  Bennettsville,  S.  C, 
a  distance  of  io}4  miles.  Bennettsville  is  the  centre  of  a  fine  cot- 
ton producing  section,  and  contributes  largely  to  the  revenue  of 
the  system. 

Factory  Branch,  of  18.74  rniles,  was  built  to  secure  the  busi- 
ness of  the  cotton  factories  of  Deep  River,  and  connects  with  "A" 
Division  at  Climax,  12  miles  south  of  Greensboro  ;  consequently 
the  other  parts  of  the  system  have  access  to  the  business  of  this 
branch  only  over  some  part  of  "A"  Division. 

The  Madison  Branch,  from  Stokesdale  on  "  B"  Division,  18 
miles  west  of  Greensboro,  connects  with  the  Norfolk  &  Western 
Railroad  at  Madison,  but  that  road  crosses  "B"  Division  at 
Walnut  Cove,  30  miles  west  of  Greensboro,  where  most  of  the 
joint  traffic  is  exchanged,  leaving  but  little  traffic  to  be  done  over 
the  Madison  Branch  at  present,  but  it  can  possibly  be  used  to  ad- 
vantage in  the  future  for  a  heavy  coal  traffic. 

Furnace  Branch,  of  about  two  miles,  is  an  offshoot  from  "  B  " 
Division,  between  one  and  two  miles  west  of  Greensboro,  origi- 
nally built  to  facilitate  the  delivery  of  ore  and  fuel  to,  and  the 
shipments  of  iron  from  the  Greensboro  Furnace,  not  heretofore 
operated,  but  to  be  put  in  blast  at  an  early  date.     There  is  a  pri- 

10 


vate  sidinq-  on  this  branch  at  Kirkpatrick's  Brick  Yard,  and  one 
at  the  mills  and  warehouses  of  the  Southern  Finishing  &  Ware- 
house Company,  and  it  extends  to  the  mills  of  the  Proximity 
Manufacturing  Company,  crossing"  the  Southern  Railway  north  of 
Greensboro,  where  a  physical  connection  can  be  made  with  it  if 
desired. 

Granite  Branch  is  an  extension  of  "  B  "  Division  at  its  western 
end,  to  the  Mount  Airy  Granite  Quarry,  the  reputation  of  which 
for  the  quality  of  its  granite  is  now  fairly  well  established,  and  the 
quantity  is  apparently  unlimited. 

The  Aldrich  and  the  Buff  Quarry  Branches  are  offshoots 
from  "A"  Division,  made  to  facilitate  shipments  of  stone  from 
those  quarries,  and  though  belonging  to  the  system,  have  been 
operated  and  otherwise  considered  as  apart  of  "  A  "  Division. 

There  are  three  ways  in  which  the  revenue  account  of  the 
system  may  be  stated  to  show  the  relative  earning  capacity  of  its 
several  parts. 

First :  They  may  be  considered  in  the  light  of  separate  corpo- 
rations, each  doing  some  business  which  pertains  to  its  own  road 
exclusively,  and  interchanging  traffic  with  such  of  the  others  as 
may  have  a  physical  connection  with  it. 

Regarded  in  that  light,  the  actual  earnings  and  expenses  of 
each  part  of  the  system  would  form  the  basis  of  settlement  between 
them. 

Second :  "A"  Division  may  be  regarded  as  the  main  stem 
of  the  system,  'and  the  other  divisions  as  extensions  built  to  make 
important  connections  and  otherwise  secure  new  business,  which, 
from  the  very  nature  of  the  case,  would  make  them  tributary  to 
"A"    Division,  and  require  them  to  direct  their  traffic  over  it. 

Considered  in  the  light  of  tributaries  to  "A"  Division,  "  B  " 
and  "  C  '  '  Divisions  would  be  fairly  entitled  to  an  extra  allowance 
over  and  above  their  own  legitimate  and  proper  charges  on  all 
joint  traffic  with  "A"  Division  of  twenty-five  per  cent,  of  the 
earnings  ot  "A"  Division  from  such  traffic,  and  similar  drawbacks 
should  be  allowed  to  the  branches. 

Third:  The  several  Divisions  may  be  regarded  as  partners 
doing  a  joint  business,  each  contributing  its  propertv  for  the  pur- 
pose of  the  partnership,  and  all  cooperating  under  a  common 
management  to  secure  the  best  results  to  the  whole. 

Considered  in  this  light,  each  division  should  be  entitled  to 
participate  in  the  profits  of  the  concern  on  some  just  and  equitable 

1 1 


basis  that  would  recognize  both  the  value  of  the  property  and  its 
contributions  to  the  business  of  the  system. 

This  last  method  of  stating  the  revenue  account  seems  to  me 
to  be  more  in  accord  with  actual  conditions  than  any  other,  for 
"  B  "  and  "  C  "  Divisions  were  built  as  extensions  to  secure  con- 
nections important  to  "A."  The  South  Carolina  Pacific  Railway 
was  leased  and  the  branches  were  built  to  secure  new  business,  of 
which  "A"  is  the  chief  beneficiary.  The  whole  system  has  been 
operated  under  the  same  charter  with  a  single  franchise  and  one 
management,  in  the  general  interest  of  the  whole,  and  there  could 
not  be  any  special  care  or  guardianship  over  any  particular  part  or 
division  of  the  road,  for  it  was  only  when  misfortune  overtook  the 
Company  in  a  period  of  great  depression  that  any  diverse  or  con- 
flicting interests  became  apparent. 

If  the  several  properties  had  been  originally  separate  and 
distinct,  and  subsequently  combined  by  mutual  consent,  it  is  only 
by  some  such  agreement  for  the  division  of  the  net  earnings  that 
the  management  could  have  been  left  free  and  untrammelled  to  act 
solely  for  the  general  good,  and  without  reference  to  individual 
interests. 

Tfie  allowance  of  drawbacks  on  account  of  business  contri- 
buted by  extensions  and  branch  lines  is  not  new.  Such  allowances 
have  frequently  been  made  to  encourage  the  building  of  extensions 
and  branches  as  feeders  to  an  existing  road,  and  it  is  generally 
impracticable  to  construct  them  without  some  guarantee  of  interest 
on  their  cost.  I  have  known  as  much  as  thirty-five  per  cent,  of 
the  earnings  from  joint  traffic  to  be  given  in  drawbacks,  and  the 
Richmond  and  Mecklenburg  Railroad  Co.  is  now  receiving  a  draw- 
back of  twenty-five  per  cent,  under  a  traffic  contract  with  the 
Southern  Railway. 

In  the  negotiations  for  the  lease  of  the  Cairo  &  St.  Louis 
Railroad  by  the  Mobile  and  Ohio  Railroad  Company,  it  was  agreed 
that  the  annual  rental  to  be  paid  should  increase  " parri  passu  " 
with  the  increase  of  the  net  earnings  of  the  leased  line.  This  led 
to  a  demand  that  certain  conditions  should  be  observed  by  the 
lessor  in  the  direction  of  its  traffic,  which  were  deemed  embarrass- 
ing to  the  management.  To  overcome  this  difficulty  and  leave  the 
management  entirely  untrammelled,  it  was  finally  agreed  that  a 
certain  proportion  of  the  net  earnings  of  the  whole  line  between 
Mobile  and  St.  Louis  should  be  considered  to  be  net  earnings  of  the 
Cairo  and  St.  Louis  Railroad.     I  mention  this  to  show  that  when 


several  railroads  are  operated  together  in  one  system  for  the  general 
good  of  all,  the  distribution  of  net  earnings  is  sometimes  made  in 
proportion  to  the  relative  interest  of  the  several  properties  in  the 
general  result,  and  not  on  the  actual  net  earnings  of  each  road. 

EARNINGS  AND  EXPENSES. 

A  careful  examination  ol  the  books  of  the  Company  shows 
that  the  earnings  and  expenses  as  therein  recorded,  can  not  be 
accepted  as  a  true  exhibit  of  the  actual  results  of  the  operations  of 
the  Company  for  five  years  from  July  ist,  1890,  to  June  30th,  1895, 
and  supplementary  statements  have  been  prepared  by  the  General 
Manager  and  the  Auditor  to  show  the  additions  to,  and  the  de- 
ductions from,  both  Earnings  and  Expenses,  necessary  to  make  a 
correct  exhibit  of  the  operations  for  that  period.  I  shall,  there- 
fore, make  use  of  the  corrected  Earnings  and  Expenses  to  de- 
termine the  franchise  values. 

In  order  to  give  a  clear  and  comprehensive  view  of  the  busi- 
ness of  the  system,  and  to  show  from  whence  its  revenues  were 
derived,  I  have  prepared,  and  herewith  submit  the  following : 


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The  value  to  the  system  of  the  business  contributed  by  each 
part  of  it,  and  the  earnings  made  by  each  from  participation  in 
the  transportation  service  are  by  no  means  the  same,  for  the 
revenue  from  business  contributed  by  one  section  will  appear  not 
only  in  the  earnings  of  that  section,  but  also  included  in  the  earn- 
ings of  other  sections  over  which  the  traffic  passed. 

To  show  the  relative  contributions  to  the  earnings  the  follow- 
ing statement  (Exhibit  F)  is  submitted  : 


s 

X 
X 
W 


Total. 


=      vr     m     — 

1-        C_J        71        O 


•-£         33         ~. 


Granite    Branch 
Earnings . .   .   . 


Furnace  Branch 
Earnings . .   .    . 


Mad.    Br.    Earn- 
ings   


ei      ,-1      io      -* 


Fac.     Br. 
ings . . 


S.  C.  P.  Earnings. 


C  Division  Earn- 
ings   


B  Division  Earn- 
ings   


A  Division  Earn- 
ings   


O        30        00        CO 


h  n  |  h 

g  ri  i  o 

O  — _  Tl_  -* 

i  :i  i:  S 


—      i-     o 


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S     b     O 


The  earnings  of  the  system  as  shown  by  the  Auditor's  "  sum- 
mary," page  13  of  the  printed  statement,  may  be  divided  into  two 
general  classes,  which  I  designate  as  "private''  earnings,  from 
the  exclusive  business  of  each  separate  section  of  the  road,  and  the 
earnings  from  joint  traffic,  in  which  two  or  more  sections  of  the 
road  participate. 

The  contributions  of  the  South  Carolina  Pacific  Railway  to 
the  joint  traffic  was  large,  amounting  to  $324,070.11,  and  of  this 
$240,754.72  was  made  on  the  "A"  Division,  which  accounts  for 
the  earnings  made  by  that  division  being  so  much  greater  than  its 
contributions  to  Earnings. 

The  following  statement  (Exhibit  G,)  shows  the  Private  Earn- 
ings and  the  Joint  Traffic  as  contributed,  and  as  made  by  each 
section  of  the  Cape  Fear  &  Yadkin  Valley  Railway  proper. 

EXHIBIT  G. 


EARNINGS  AS  CONTRI- 
BUTED 

EARNINGS  AS   MADE 

Private 
Earnings 

Joint  Traffic 

Private 
Earnings 

Joint  Traffic 

ADiv.,  .   .   . 
B     "      ... 
C     "      ... 
Factory  Br., 
Madison  " 
Furnace   " 
Granite     " 

$814,743  96 
315,579.28 
250,963-96 
9,271.79 
5,996.lS 
3-33°-oo 
4.978  00 

$436,721.74 

266,689.78 

226.529.29 

43,543-i6 

21,151.12 

$814,743,96 
315,579.28 

250,963-96 
9,271.79 
5.996,18 
3,330-00 
4,978.00 

$609,939.29 

180,051.12 

256,448.11 

42,858.28 

23,53I-II 

Totals,  . 

$1,404,863.17,    $994,635-09 

$1,404,863.17 

$1,112,827.91 

The  Expenses  for  the  five  years  as  shown  in  the  Supplementary 
statements,  and  the  Net  Earnings  of  the  South  Carolina  Pacific 
Railway  are  as  follows  : 

EXHIBIT  H. 


Expenses 

Net  Earnings 

S.  C.  Pacific 

Rv. 

A  Division, 

$946,267.30 

439.482.71 

457,850.74 

70,378.99 

50,034.09 

2,757-99 
5,682.24 

$9,051.62 
4,395-04 
5,093-83 
1,176.92 

7I5-H 

B        "          

C        "          

Factory  Branch, 

Madison     "         

Furnace     "         i 

Granite       "         

Total, 

$i,972,454-o6 

$20,432.55 

16 


The  net  earnings  of  the  South  Carolina  Pacific  Railway  are 
distributed  to  "A,"  "B"  and  "C"  Divisions  and  the  Factory  and 
Madison  Branches  in  proportion  to  their  length,  as  the  lease  was  on 
joint  account,  and  no  better  scale  for  the  distribution  has  been 
thought  of. 

REVENUE  ACCOUNT. 

The  foregoing  Exhibits,  E,  F,  G  and  H,  furnish  the  data  for 
stating  the  revenue  account  in  the  three  ways  already  explained. 

The  net  earnings  of  the  system  for  the  five  years  were 
$565,669.57,  and  the  question  is  how  to  make  a  just  and  equitable 
distribution  of  them  between  the  several  parts  of  the  Cape  Fear 
and  Yadkin  Valley  Railway — exclusive  of  the  Leased  Line — or 
South  Carolina  Pacific  Ry. 

As  there  are  four  classes  of  bonds  and  the  General  Mortgage 
Bonds  cover  the  branches,  as  a  first  mortgage  on  that  part  of  the 
property,  while  the  "A,"  "B"  and  "C"  Bonds  constitute  a  first 
mortgage  on  the  "A,"  "B"  and  "C"  Divisions,  respectively,  it 
will  simplify  the  question  to  treat  all  the  branches  as  a  single  in- 
terest. 

The  expenses  of  the  branches  exceed  their  earnings,  making 
a  deficit,  and  on  the  first  two  methods  of  stating  the  Revenue  Ac- 
count the  net  earnings  of  the  "A,"  "B"  and  "C"  Divisions  ex- 
ceed the  total  net  earnings  of  the  system.  It  will,  therefore,  be 
necessary  to  charge  the  deficit  on  the  branches  against  the  net 
earnings  of  "A,"  "B"  and  "C"  Divisions,  and  the  most  equitable 
way  to  do  this  will  be  in  proportion  to  the  earnings  of  "A,"  "B" 
and  "C"  Divisions,  respectively,  from  their  joint  traffic  with  the 
branches. 

By  the  third  plan  for  stating  the  Revenue  Account,  the  physi- 
cal values  are  to  be  taken  into  account,  and,  in  my  opinion,  each 
dollar  of  physical  value  should  count  for  as  much  as  each  dollar 
contributed  to  the  earnings  of  the  system. 

The  use  of  the  tracks  of  the  "A"  Division  at  Greensboro  by 
the  trains  of  "B"  Division  is  compensated  for  by  the  use  of  the 
tracks  of  "B"  Division  at  that  place  by  "A"  Division,  but  at  Fay  - 
etteville  compensation  should  be  allowed  to  "A"  Division  for  the 
use  of  its  tracks  by  "C"  Division. 

The  length  of  track  used  bv  "C"  Division  is  5,598  feet  or 
i^W  miles,  worth  at  the  average  value  of  "A"  Division, 
$8,096.81.      A  fair  allowance  for  rental  of  this  track  would,  in  my 

17 


opinion,  be  $1,100  per  annum,  or  $5,500  for  the  five  years. 
The  following  statement  (Exhibit  I)  shows  the  results  of  the 
five  years  operations  in  net  earnings  and  the  percentages  to  which 
each  of  the  divisions  and  the  branches  would  be  entitled  on  each 
of  the  three  plans  for  stating  the  Revenue  Account  : 

EXHIBIT  I. 


PLAN  NO.  1. 

PLAN  NO.  2. 

PLAN  NO.  3- 

Net  Earnings 

Per  Ct. 

Net  Earnings 

Per  Ct. 

Net  Earnings 

Per  Ct. 

A  Div  . 
B  Div  . 
C  Div  . 
Bran's  . 

$466,804.08 

53,l69-45 
45,696.04 

82. 523 

9-399 
S.078 

$370,042.72 

100,73345 

94,893.40 

65-4I7 
17.808 

16-775 

$271  166.71 

138,255.30 

119,897.63 

36,349.93 

47  937 

24.441 

21.196 

6.425 

Total  . 

$565,669.57 

100.000 

$565,669.57 

100.000 

$565,669.57 

100.000 

In  arriving  at  the  percentages  for  the  distribution  of  net 
earnings  on  the  third  plan  of  stating  the  revenue  account,  the 
following  percentages  were  used,  and  they  are  given  and  the 
method  of  arriving  at  them  so  that  the  accuracy  of  my  conclusions 
may  be  tested. 


PERCENTAGES 

Earnings 
Contributed 

Net  Earn- 
ings 
S.  C  P.  Ry. 

Total  Earn- 
ings Contri- 
buted 

Earnings 
Cont'd 

Physical 
Value 

Average 

A  Div., 
B      " 
C      " 
Brs.,  .  . 

$1,251,465.70 

582,269.06 

477,493.25 

88,270.25 

$9,051.62 
4,395.04 
5-Q93-S3 
1,892.06 

$1,260,517.32 

586,664.10 

482,587.08 

90,162.31 

52.089 

24.243 

19.942 

3-726 

41.841 
24.639 

24-349 
9.126 

46.965 

24.441 

22.068 

6.426 

Distribution  of  net  earnings  by  the  average  percentages 
above  with  allowance  to  '  'A' '  Division  for  use  of  track  at  Fayetteville 
by  "C  '  Division  of  $5,500,  gives  the  percentages  on  Plan  No.  3  in 
Exhibit  I. 

In  submitting  the  above,  I  beg  to  express  my  thanks  to  your- 
self and  to  the  officers  of  the  Company  for  the  very  valuable  and 
efficient  assistance  rendered  me  in  the  laborious  work  of  examining 
the  books  and  distributing  accounts. 

Very  respectfully, 

Your  obedient  servant, 

[Signed.]  T.   M.  R.  TALCOTT. 


'•./''.'■ 


ill  wraNBSI* 


UNIVERSITY  OF  N.C.  AT  CHAPEL  HILL 


00042093803 

FOR  USE  ONLY  IN 
THE  NORTH  CAROLINA  COLLECTION 


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mBSaBm 


ra^»r«KBBH 


